Summary

However they came off their worst levels as the US market managed to stage a mild recovery, with the Dow Jones Industrial Average currently marginally in positive territory, up 35 points, although the tech-heavy Nasdaq is down around 1%. Amazon in particular is being hit by reports that the US president plans to go after the company and altering its tax treatment.

Back with Shire, and Ketan Patel at EdenTree Investment Management says it could be a key moment if a deal goes ahead:

If a bid does materialise from Takeda for drug maker Shire, it would be a watershed moment for Japanese pharma. There hasn’t been a cross border transaction in the sector, excluding joint ventures and small generic M&A. Takeda’s cash laden balance sheet appears a good fit for Shire’s struggling balance sheet, following recent large scale M&A.

The attraction for Takeda is the highly lucrative rare disease market in the US, which comes with exceedingly high margins and is largely exempt from the usual pricing pressure that affects the wider pharmaceutical sector.

The stronger than expected US GDP figure will revive talk about how many interest rate rises the Federal Reserve will sanction this year. Dennis de Jong, managing director at UFX.com, said:

Robust jobs growth and healthy consumer spending have been attributed to today’s stronger than expected US GDP data, as the country’s economic outlook appears in rude health and the 3% growth target appears within touching distance.

...As a result of the strong economic outlook, questions may be raised around the possibility of Fed Chair Jerome Powell introducing a June rate hike.

It may be a case of US growth being monitored before any rate decision is made, but markets could be volatile between now and then.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, residential fixed investment, state and local government spending, and federal government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

US economy grows more strongly than expected

Breaking news:

Something for Donald Trump to tweet about. The US economy grew more strongly than expected in the final quarter, up 2.9% on an annualised basis compared to expectations of a 2.7% increase and an initial estimate of 2.5% growth.

Here’s some analyst reaction to the possible Shire deal. Peter Welford at Jefferies says the structure of any deal is uncertain:

We see the potential strategic rationale for the deal and have long highlighted Shire is currently trading at a substantial discount to our fundamental 4300p or so value given overhangs, notably haemophilia competitive concerns. Nevertheless Takeda’s near.$42bn market cap versus Shire’s $47bn or $66bn enterprise value raises questions on a potential deal structure....

We presume Takeda would need a significant equity raise to acquire Shire, suggesting a “merger” is perhaps better terminology, which may raise hurdles to the successful completion of any future deal.

Jack Scannell at UBS says other bidders could emerge:

Since Takeda’s market cap is close to Shire’s we assume a potential offer would have to include a substantial percentage in equity and how Shire’s board and shareholders would react is hard to predict. However as Shire’s share price is significantly below the net present value of our cash flow estimates, Takeda could trigger discussion of other bidders.

Shire does not strike us as an obvious take-over candidate. There is presumably a price at which the financial engineering would work. However, Shire’s specialty focus and mix of therapeutic foci means that most buyers would struggle to extract substantial operational synergies while escaping from competition problems, in our view. Also Shire’s low corporate tax rate could rise in most scenarios were the company acquired. It would also be a bold acquisition in our view given the uncertain trajectory of Shire’s haemophilia business. A merger of equals in this context might be more feasible.

Shares in the UK-listed drugmaker Shire surged after Japan’s biggest pharmaceutical company, Takeda Pharmaceutical, said it was considering making a takeover approach.

Shire’s shares jumped as much as 33% to £38.79 on the news, and later traded 17% higher at £36, valuing the company at £32.8bn. Takeda’s market value is about £29bn, around the same as Shire’s at last night’s closing price.

Shire is best known for its ADHD drug Adderall but its focus in recent years has been on rare diseases. The company is based in Dublin for tax purposes but run from Boston. Most of its operations are in the US.

Shire's shares surge as Japan's Takeda considers bid

Here is the full statement from Takeda, which includes more detail of the Japanese company’s thinking:

Takeda believes that a potential transaction with Shire presents an opportunity to advance Takeda’s stated Vision 2025, build on its current strong momentum, and create a truly global, value-based Japanese biopharmaceutical leader. In particular, a transaction with Shire would:

· balance Takeda’s geographic focus to align with the market opportunity in the U.S.

· drive financial value from a strong combined financial profile

Clearly defined strategic and financial objectives are core to Takeda’s disciplined approach to acquisitions, including in relation to its dividend policy and credit rating, which are well-established. Any potential offer for Shire, if made, would have to align with this strict investment criteria.